Correlation Between Citigroup and Contact Energy

Can any of the company-specific risk be diversified away by investing in both Citigroup and Contact Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Citigroup and Contact Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citigroup and Contact Energy Limited, you can compare the effects of market volatilities on Citigroup and Contact Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Citigroup with a short position of Contact Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citigroup and Contact Energy.

Diversification Opportunities for Citigroup and Contact Energy

0.59

Correlation Coefficient

Citigroup  Contact Energy

Very weak diversification

The 3 months correlation between Citigroup and Contact is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Contact Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contact Energy and Citigroup is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Citigroup are associated (or correlated) with Contact Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contact Energy has no effect on the direction of Citigroup i.e., Citigroup and Contact Energy go up and down completely randomly.

Pair Corralation between Citigroup and Contact Energy

Taking into account the 90-day investment horizon Citigroup is expected to under-perform the Contact Energy. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 1.11 times less risky than Contact Energy. The stock trades about -0.04 of its potential returns per unit of risk. The Contact Energy Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  446.00  in Contact Energy Limited on September 19, 2024 and sell it today you would earn a total of  6.00  from holding Contact Energy Limited or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Citigroup  vs.  Contact Energy Limited

Citigroup

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Contact Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Contact Energy Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Contact Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Citigroup and Contact Energy

The main advantage of trading using opposite Citigroup and Contact Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup position performs unexpectedly, Contact Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Contact Energy will offset losses from the drop in Contact Energy's long position.

The idea behind Citigroup and Contact Energy Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.